China plans to impose taxes on oil by-products: sources

SINGAPORE/BEIJING (Reuters) - China plans to impose consumption taxes on oil by-products such as mixed aromatics, light cycle oil and bitumen blend, tightening regulations on a fuel import market worth millions of dollars.

The proposed taxes of more than 1,000 yuan ($145.01) per ton for the oil products could start in May, four sources with knowledge of the matter said, declining to be identified as they are not authorized to speak with media.

The taxes will effectively close a loophole often used by oil traders in China and will shut the door on nearly 20 million tonnes of imports of these products and improve sales of fuel produced locally, they said.

Outside of China, the policy change will have a ripple effect across trading companies and refineries in Asia and Europe which have relied on the world’s second-largest oil consumer as a key outlet for such products.

“If taxes are imposed, I think this market will be dead,” said a South Korean refining source who declined to be named due to company policy.

A consumption tax of 1,400 yuan per ton could be levied for light cycle oil (LCO), a refinery by-product that is consumed in China as low-grade diesel, two of the sources said.

Importers of mixed aromatics, petrochemical products such as benzene, toluene and mixed xylenes that are blended with gasoline to boost octane levels, may have to pay 2,100 yuan per ton as a consumption tax, similar to that levied for gasoline.

Bitumen blend, a popular feedstock choice among independent refiners, could see a 1,200 per ton tax levied on imports. The residue is often processed in crude distillation units or in upgrading units such as cokers to produce higher value fuels.

The Ministry of Finance did not respond to Reuters’ request for comment.

In a proposal from state-owned refiner Sinopec to the Chinese government to tighten the tax scrutiny on LCO, a company executive cited customs data for LCO imports at 3.22 million tonnes from January to September 2016, up 194 pct on year.

This works out to an average of about 350,000 tonnes a month.

This has risen to 600,000 tonnes a month by March of this year after the lucrative trade attracted cargoes from the west, two traders familiar with the market said.

Reporting by Jessica Jaganathan, Florence Tan and Seng Li Peng in SINGAPORE and Chen Aizhu in BEIJING; Editing by Christian Schmollinger